A-Level Edexcel Economics A Government Intervention: 1. Market share of UK branded co

Question

1. Market share of UK branded coffee shops, 2015, percentages

Figure 1: Market share of UK branded coffee shops, 2015, percentages

Others 29%
Costa Coffee 31%
Starbucks 13%
Caffe Nero 9%
Pret a Manger 6%
Morrisons 6%
Tesco 7%

Figure 2: Number of Starbucks coffee shops worldwide, 2003-2016

Figure 3: Price comparison in selected London coffee retailers, February 2017

Coffee style   Starbucks     Costa Coffee    Caffe Nero    Greggs     McDonald's
Espresso Double  £2.00        £1.70          £1.65          £0.99      £0.99
Latte Medium     £2.60        £2.50          £2.80          -           £1.79
Latte Large      £2.80        £2.70          £2.80          -           £2.09

Extract B
Tax on disposable coffee cups?

Two and a half billion disposable coffee cups are thrown away every year in the UK, that is, seven million every day. Only one in 400 is recycled. The UK Environment Minister has suggested that a charge could work in a similar manner to the plastic bag charge that has recently been implemented. Since the change has taken place, it is estimated that the 13 billion plastic bags used each year have dropped by around 85%. It is believed that, even with the rise in the cost of disposable cups, there could be a similar decrease in their use if a charge is introduced. In addition, a survey has suggested that many consumers would be willing to pay a small charge of around 5p to take their cup home.

Extract C
German city of Freiburg takes action on curbing the use of disposable coffee cups

The 'Freiburg cup', made from dishwasher-proof plastic, can be reused hundreds of times. Coffee shops in the Germany city, that are required to offer the cups, buy them for a one-euro deposit, and the cups are returned to the shops by regular customers when they are finished. It's claimed that the local cafes have signed up, and 10,000 cups are in circulation, but Starbucks and McDonald's, that essentially sell coffee in disposable cups, are not buying into it, as customers take their cups to the shop, paying only the deposit.

Extract A
Starbucks in Britain – a loss-making business?

Coffee shops are among the most profitable parts of the food and drink industry, and few have grown as fast as Starbucks, a US-based brand established in 1971. Starbucks first opened its first coffee shop in the UK in 1998. It now has 849 UK outlets. The main reason why Starbucks has reported persistent losses in the UK is not due to a lack of demand for its coffee, but to minimise its tax bill. It is claimed that some of Starbucks' revenue earned in the UK is transferred to its Dutch subsidiary, which is charged lower rates of tax.

These issues have forced Starbucks to change its strategy. It has slowed down its expansion plans in the UK, closing more than 67 underperforming shops over the past year. It has also tried to repair its reputation by transferring its European headquarters from Amsterdam to London.

1(a) Identify and explain the market structure that describes the UK branded coffee shop market.

1(b) With reference to Figure 3 and other information provided, discuss the price and non-price strategies Starbucks may pursue.

1(c) Examine the advantages of using an indirect tax as a means of reducing the use of disposable coffee cups.

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